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July 22, 1999
A bull run is gracing information technology stocks in the Indian markets. This has led to a rash of companies masquerading as IT companies in the hope of enjoying the high market capitalisation.
In fact many non-IT companies have changed their names to include words like 'information', 'technology', 'infotech' or 'software services' in their titles. This has fooled many investors into believing that the companies belong to the high-growth global IT industry.
The menace recently goaded the Securities and Exchange Board of India into investigating misleading names of listed companies.
He said "We welcome genuine diversification but if companies are changing their names just to cash in on the goodwill that the software industry has, then some measures have to be taken against this."
Industry experts explain companies mostly change their names to sound like IT companies when they are planning an initial public offering.
Mehta explained, "We are thinking of starting a rating agency which would be an independent body. NASSCOM would not own it but we would just nucleate the process. We will not try to influence the process of rating the companies."
NASSCOM plans to partner with one of the existing credit and rating agencies to establish an independent agency for information technology companies.
"The ratings would indicate the financial worth of the company. It would also reflect on how quick the company is in terms of adapting new technologies. While rating a company we would also like to give weightage to quality certificates like SEI-CMM. The ratings would also give an idea about how the company is responding to changes and advances in technology," Mehta promised.
He said the criteria for membership to NASSCOM have been tightened too. At least 25 companies were refused membership last year for reasons like non-compliance with membership conditions set by NASSCOM and refusal to give detailed information about the company's operations.
Mehta explained that NASSCOM plans to adopt a referral system for granting membership to new members. New members would have to be referred by at least three existing members of NASSCOM and a decision would be taken on their membership only after an evaluation of the company.
"I hope that this peer review system would help to separate companies that are not genuinely involved in the software sector. It would also help to establish a positive way of telling people that the company is a genuine one," he said.
Once the independent credit rating agency is established, NASSCOM plans to educate the broker community about the methods involved in arriving at the ratings for individual companies.
Mehta revealed that NASSCOM has also already initiated a dialogue with SEBI on the possibility of collaboration on building the rating agency.
He, however, admitted that rating agency is still at the concept level. "I don't see it in place for another six months," he said.
Seminar on information technology in bankingMehta was speaking to Rediff at a one-day conference on information technology in banking that NASSCOM was hosting in Bombay.
Reserve Bank of India Deputy Governor S P Talwar delivered the IT@bank.com conference's keynote address.
He said "Computerisation of branch operations, controlling offices and head offices has been going apace sharply as it is in the only way by which senior managements in banks can gain information on the size of the operations on a daily basis. In terms of numbers there are 65,300 PCs and nodes in about 3,800 fully computerised branches across the country. There are an additional 14,000 PCs in the regional offices and head offices of banks along with 2,745 LAN systems."
Talwar pointed out that the increase in the functional and geographical spread of banks has necessitated the switchover from hard cash to paper based instruments. "In India this has been facilitated by adopting MICR clearing technology which will be extended to an additional six centres by the end of the year."
RBI has started a BANKNET network which is a leased line terrestrial network connecting seven major cities of Bombay, Delhi, Calcutta, Madras, Hyderabad, Bangalore and Nagpur.
The BANKNET infrastructure uses RBInet, which is a communication software to provide message and file transfer between branches of banks and across banks.
"A landmark development is the setting up of the INFINET- Indian financial network. It is a wide-area satellite based network using VSAT technology and is expected to interconnect 433 branches of banks in the first phase. The operationalisation of the INFINET is a milestone in that the critical inter-bank transactions could be conducted on it in the future," Talwar said.
He claimed that RBI has been offering electronic clearing service in 15 centres where the Reserve Bank has its offices. In terms of figures he pointed out that the number of transactions under ECS credit has increased from 2.3 million in 1997 to 4.3 million as on December 31, 1998.
Recently the Central Vigilance Commission had also issued a directive to banks to computerise at least 70 per cent of their operations by 2001.
N Vittal, chief vigilance commissioner, also delivered a lecture. He said, "Banks have been telling me that they have taken various measures to computerise their operations. But I always tell them I have only one test. If I come with an outstation cheque, will it be cleared the same day? If it is, then I can believe that they have achieved a certain degree of computerisation."
Talwar complained that one of the major issues plaguing the banking industry is the lack of standardisation of operating systems, systems software and application software throughout the banking industry.
A committee set up by the RBI has recommended the need for standards and an appropriate institutional arrangement for key management and authentication by a certification agency.
Talwar revealed that a working group on the design of message formats has also been set up. The group has already finalised the message formats for applications such as customer payments and cheques, financial institution transfers, treasury markets, collections and cash letters.
Talwar said that the RBI has also constituted sub-groups for standardisation of different information technology components like networking products and system software.
RBI plans to set up a centralised funds management system for the benefit of the banks. The system would connect all the deposit accounts department of RBI located at 17 regional offices with the apex level server in Bombay.
It would periodically update the current account balances in the apex level server wherever a transaction is put through at the local or remote deposit accounts department.
The bank level server would also be able to query the apex level server to check on its overall funds position.
Talwar assured that RBI has a few contingency plans to deal with the Y2K problem. The contingency plans for handling clearing operations include switching over to the magnetic media based input clearing system that can work in a LAN environment and on a stand-alone PC. Other measures like stocking adequate amounts of cash in all the offices of the bank as well as over 4,000 currency chests across the country.
Vittal claimed that full-fledged computerisation would help in the early detection and prevention of frauds. "Manipulation of books by unscrupulous staff, frauds relating to local clearing operations will be prevented if computerisation in banks takes place," he stressed.
Girish Vaidya, senior vice-president, Infosys Technologies, detailed some of the challenges that Internet banking in the country faces:
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